AT&T/DirecTV to FCC: Critics Are Off Base; OK Deal 'Swiftly'

In joint comments at the FCC, AT&T and DirecTV have asked the FCC to reject petitions to deny their proposed deal and approve the merger ASAP.

As with Comcast's reply to its Time Warner Cable deal critics, AT&T dismisses Netflix's criticisms of their paid peering deal.

Netflix seeks to use this proceeding to rehash misleading allegations about AT&T’s prior conduct," the companies said in the filing. "Those claims are not only irrelevant to this transaction; they are inaccurate. AT&T did not, as Netflix asserts, allow Netflix traffic to become congested. Rather, Netflix’s own business decisions caused its traffic to spike to the point where it was overtaxing the connections Netflix had selected to route its traffic to AT&T’s network. To resolve this issue, AT&T and Netflix entered into a commercially reasonable long-term contract under terms favorable to Netflix. Now, even by Netflix’s own account, the new arrangement is working well for Netflix and its customers. Nothing about this history suggests the need to apply conditions on this transaction."

Comcast has also argued that it was Netflix dumping the traffic as part of its larger effort to shift the cost for carrying its content onto the backs of others. Netflix has complained that the paid peering deals were essentially under duress and to prevent ISPs from slowing or degrading its traffic.

AT&T and DirecTV chalk up Cogent's opposition to similar efforts to avoid paid peering negotiations. "In all events, there is no legal or policy basis for using this proceeding to supplant a functioning marketplace for Internet peering and interconnection with ad hoc new regulation."

AT&T and DirecTV agree with FCC Chairman Tom Wheeler.

The companies say opponents of the deal do not rebut their evidence that the deal will result in lower prices for the AT&T video/broadband bundle and rival cable offerings and that consumers will be better off.

Netflix has argued that paid peering is a net neutrality issue, but Wheeler has suggested it is a separate issue, though one worth looking at. "In its 2010 Open Internet Order, the Commission declined to regulate these same backbone relationships," said the companies, "and the Commission is just beginning a new inquiry on what Netflix and Cogent concede are industry-wide issues. That new inquiry is the proper forum to decide on a future course of action, not this proceeding."

AT&T and DirecTV also say its opponents do not "seriously dispute" that the merger will provide cost savings, which the companies says is important because those cost savings will benefit the public by "putting downward pressure" on video and broadband prices and produce "net" consumer welfare of up to $1.44 billion annually.

As to suggestions the benefits are overstated or not transaction-related, AT&T and DirecTV say that is "contrary to the record."

It says consumers will also clearly benefit from the combined companies' plan to deploy high-speed broadband to 15 million additional customer locations beyond current plans. Wheeler has said speed is the new deployment "table stakes."

They point out that the Communications Workers of America is a big supporter of the deal, as is the AFL-CIO.

Deal critics have charged that the combo will discriminate against over-the-top distributors. AT&T says that claim fails because DirecTV is not contributing any broadband assets, so the deal would not give AT&T a greater ability to discriminate. Besides, says AT&T, the merged company has the incentive to expand access to online video services since it can't draw new customers without offering a "full array of content."

AT&T has pledged as part of the deal to be subject to the FCC's 2010 Open Internet rules, including the prohibition on unreasonable discrimination, for three years after the deal closes--mirroring a condition in the Comcast/NBCU deal.

Given that and other voluntary conditions, they conclude: "Opponents’ efforts to show countervailing harm to consumers are unpersuasive and, in many cases, transparent attempts to advance parochial agendas. On this record, including AT&T’s voluntary commitments, the Commission should approve the transaction swiftly."